Honeywell makes case for $90.7bn UTC merger

26 February, 2016

SOURCE: Flight Dashboard

BY: Stephen Trimble

Washington DC

In the face of growing criticisms from major aerospace manufacturers, Honeywell has confirmed details and possible benefits of a proposal to acquire Pratt & Whitney and UTC Aerospace Systems parent United Technologies in a $90.7 billion deal.

A powerpoint presentation released on 26 February by Honeywell argues that the deal offers major benefits for the large aircraft manufacturers, despite the publicly stated opposition to a Honeywell-UTC merger by Airbus and Embraer chief executives earlier this week. UTC executives have also spoken out against a merger, saying any positive results would be offset by spinoffs required by antitrust regulators.

But Honeywell says the combined company would aggregate a $8 billion research and development warchest to develop a “wider array of aircraft systems and products”, according to the presentation. Honeywell also could bring “software and connectivity” upgrades to “mechanical products” made by UTC, but the company offers no elaboration.

The companies also have “complimentary” businesses that could wield greater market power to drive down raw materials costs, Honeywell says. Cheaper raw materials could help the combined firm meet the demand of aircraft OEMs for year-over-year productivity improvements, Honeywell argues.

Moreover, Honeywell argues there is “limited overlap” between the product lines, a counter to UTC’s claim that antitrust requirements would destroy the value of the deal. “Potential regulatory issues [are] easily resolved,” Honeywell says in the presentation.

Embraer CEO Frederico Curado, speaking to Flightglobal on 25 February, objects to the deal over concerns about the combined company’s market power as a supplier to an OEM. Both companies already have significant content on the E190-E2 platform, Curado says, and a combination would give the Honeywell-led merged company an “enormous” stake in the programme.

Honeywell acknowledges such a merger would reduce the number of aerospace suppliers, but says the negative effects would be offset by “commercially-derived R&D investment”, the presentation says.

Honeywell also made an appeal to the financial interests of UTC shareholders, but the figures paint a mixed picture. By offering $108 per share, accepting Honeywell’s proposal gives shareholders a 22% profit based on UTC”s market value at the end of 25 February. But UTC shares were trading near 52-week lows before Honeywell revealed details of its proposal on 26 February.

Combining UTC and Honeywell also would allow the merged entity to shed $3.5 billion in annual operating costs within four years by eliminating redundant back-office functions, Honeywell claims.